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As the Dow Jones Industrial Average barrels toward a record high, all the hoopla is dividing the market. Small- and mid-cap stocks have already crossed into record territory. So, does the belated arrival of big-caps signal that the party is peaking—or will it herald a sustained bull market we all can embrace?

The blue-chip benchmark came within 15 points last Thursday of the 14,165 peak it reached in October 2007, while the Standard & Poor's 500, at 1518, is a mere 3% from its 2007 high of 1565. Surpassing these records, which might happen as early as this week, could set off a bout of profit-taking, what with investors fretting about rising gasoline prices and government belt-tightening. But any pullback could be an opportunity for long-term investors, since stocks will likely finish the year higher than today's levels, thanks to still-muted expectations, still-reasonable valuations, and an economic expansion that still could surprise the legions of skeptics.

The Dow has already levitated more than 12% since mid-November, so the urge to book some profits is understandable. Much has been made about stocks' vulnerability to the spending cuts that kicked in on March 1, since these could reduce government spending by $85 billion this year. But while the so-called sequestration could trim 1.5 percentage points off second-quarter economic growth, Ethan Harris, BofA Merrill Lynch's economist, thinks second-quarter growth in gross domestic product of about 1% may well mark the trough for 2013.

Government belt-tightening will have to thwart auto sales, business confidence, and payrolls to set off a meaning correction.

That looks unlikely for now. "A big-risk correction in the next eight weeks, one that takes the S&P 500 to the 1,300-1,400 range, requires either a big policy mistake or a clear weakening of the global economy," says Michael Hartnett, BofA Merrill Lynch's chief investment strategist. U.S. fiscal tightening and messy European politics could rattle the market, but to upset the regime of high liquidity and slow growth would require an unruly surge in bond yields or downgrades of U.S. or German growth.

"Central bankers rather than politicians are the dominant driver of asset prices," Hartnett says.

BARRON'S HAS BEEN BULLISH on stocks recently. About four months ago, we predicted the Dow could make a new high early this year (see "Almost There," Oct. 15, 2012), and we still believe, as we argued a year ago, that the Dow could end 2013 near 15,000 (see "Enter the Bull," Feb. 13, 2012).

It helps, of course, that stocks remain attractively valued even after their rally, especially compared with other assets like sovereign bonds. The Dow trades at 12.6 times what its components are projected to earn in 2013, well off its median of 17.2 times in the past two decades. Its earnings yield—the inverse of its price/earnings ratio—is a whopping 8.2%, more than six percentage points higher than the yield from 10-year Treasuries. The Dow's 30 components also pay an average dividend yield pushing 2.5%, above the decade median and far better than the payout from crowded Treasuries.

The broader S&P 500 also trades at a middling 14.5 times what companies earned over the past 12 months—cheap, given low borrowing costs and benign inflation. If the bull market ended now, it would mark the lowest multiple of earnings at a bull-market peak since World War II—well below the 16.8 multiple in 2007, or 28.2 times at the height of the tech bubble, notes Jeffrey Kleintop, LPL Financial's chief market strategist.

Cheap stocks, of course, can become cheaper if growth tanks, but even here there are hints our economy may prove more resilient than the consensus expects.

For a start, corporations have put off buying new equipment and upgrading technology during the serial crises of recent years, and at some point they will have to start spending their cash stashes. For instance, capital expenditures have shrunk to just 55% of corporate profits, well below the six-decade average near 89%. "There's a lot of room for increased capital expenditures," says Hans Olsen, head of investment strategy for the Americas at Barclays Wealth and Investment Management.

Hoarding cash to buy back shares also is losing its appeal as stock prices and interest rates rise, and big companies become more eager to buy growth.

The U.S. likewise is enjoying an energy boom, with natural-gas production expected to accelerate through 2040. Lower energy costs give local manufacturers a big edge over their foreign competitors, and help bring jobs back to the U.S. (see "The Next Boom," Jan. 28). The beneficiaries: energy-intensive sectors like chemicals, steel, and equipment makers—and the spillover effect could prop up transport companies, regional lenders, and local small businesses.

In the short term, however, there are some flashing yellow lights: Commodities from crude oil to copper have corrected more than 5% in February to plumb fresh 2013 lows. Bespoke Investment Group tracks the net number of economic reports that have surpassed projections over the past 50 days, and this has shriveled from 23 in mid-November to -3 recently, a sign that market expectations are catching up to our mending economy.

Stocks' stalwart momentum also shows signs of waning: As the Dow climbed last week, broader and more economically sensitive gauges like the Nasdaq Composite Index and the Russell 2000 have pulled back from their mid-February highs.

Meanwhile, Americans grappling with higher payroll taxes now must cope with gasoline pushing $3.80 a gallon, and increasingly shrill headlines from Washington.

YOU'D THINK A BULL market pushing new highs would be awash in euphoria. But the panic of the financial crisis has essentially been replaced with anxiety. Most Americans still can't bring themselves to embrace economic growth midwived by monetary policy, and we keep fearing the day when our central bank might withdraw its largesse—that is, when we aren't fretting about European debt, or Chinese real-estate bubbles. While the transfer of debt from the private sector to Uncle Sam has helped shrink household loan burdens to the most manageable level in three decades, the government's debt load has become yet another thing to anguish over.

As a result, Americans remain underinvested in stocks. U.S. private pensions have only 35% of their assets in equities, well below the long-term average near 45%. BofA tracks the suggested allocation to stocks recommended by its peers, and while that percentage ticked up from 43% last summer to nearly 50% recently, it has now dipped to 47%. That's well off the 61% average over the past 15 years, or highs pushing 66% seen at recent market tops. "It will be a long while before we need to worry about greed replacing anxiety," says Hank Smith, chief investment officer of Haverford Investments.

Until recently, investors pulled $391 billion from U.S. stock mutual funds even as U.S. stocks more than doubled from their 2009 lows. Ironically, stock prices may be getting rich enough to lure sidelined skeptics.

Sure, the bull market is entering its fifth year, but there's little evidence of the kind of things that set off a bear market—things like looming recessions, constricting monetary policies, extreme valuations, and investor euphoria, says Keith Lerner, SunTrust Bank's senior market strategist. "U.S. economic output, corporate earnings, and consumer spending have all already recovered to new highs." In a way, you could say the Dow is merely catching up.